Buoyed by the prospect of five years of strong market growth driven by the long-term extension of the production tax credit (PTC), the 7,200 delegates attending the American Wind Energy Association's May 23-26 conference exuded a sense of optimism and excitement at the opportunities that lay ahead.
But their enthusiasm was tempered by the realisation that, without a laser focus on driving down wind energy's costs and solidifying new sources of demand, the US industry will struggle to maintain its momentum once the subsidy finally expires in at the end of 2019.
"Let's really be clear. Unless we get to cost-competitiveness after the PTC phase-out, we'll face a reckoning of a significantly smaller market. Two gigawatts in 2021. We call it the Valley of Death," Chris Brown, president of Vestas America and AWEA's new board chair, told delegates during the conference's opening session. "To successfully cross over it, we will need a cost of energy that beats solar and gas without incentives."
Whether the valley comes exactly in 2021 and how deep it goes remains to be seen, as project developers, power consumers, and equipment suppliers map out their strategies to take advantage of the PTC while it is still available.
But, in general, industry analysts expect to see an average of about 9GW a year of new installations through to 2020. After that, they agree, installations will dip as the industry adjusts to life without an incentive that, in many US markets, is worth more than wind producers can earn though power sales.
"At that point, it's back to the fundamentals," said Dan Shreve, a partner with Make Consulting.
Those fundamentals are likely to be challenging. Electricity demand growth is expected to be anaemic at best and further depressed by the proliferation of distributed rooftop solar and energy efficiency measures.
Power prices that are already low will be pushed down further as penetrations of low marginal cost renewables on the grid increase, while huge natural gas reserves are forecast to keep commodity prices below $3 per million BTU through 2040.
In that environment, few would disagree with Brown's assessment that continuing to drive down the levelised cost of energy (LCOE) will be paramount. "I think the race for all of us is 2020-21. What do our products look like at that time and how quickly can we get to a subsidy-free situation? That's the game," said Andy Holt, general manager of North American wind for GE.
It will test the industry, acknowledged David Hardy, senior vice-president of sales at Vestas. "Solar is aggressive, and we assume natural gas prices will stay low. That's strong competition, but we've got a runway, we've got a lot of volume, and we've got some stability. These are things we asked for, so now it's our job to do what we need to do to get there."
Shreve, for one, is optimistic. Although the spectre of increasingly cost-competitive solar stealing market share attracted a lot of attention from AWEA panelists, cheap natural gas remains wind's biggest near-term competitor.
"We think wind can beat natural gas even when gas is at $2.5/MMBTU. Obviously that is best-in-class tech, that's a strong wind site. But it can be done. And that's today," said Shreve. "When we start talking about the 2020-2025 timeframe, we expect this to get better."
The drive by OEMs to lower costs may be complicated by some short-term execution challenges. A huge influx of equipment orders is expected over the coming months as developers rush to qualify projects for the full $0.023/kWh PTC before it drops to 80% of its current value next year, 60% in 2018 and 40% in 2019.
But some of the turbines ordered today may not actually be deployed for four years, potentially crowding out the next-generation technologies needed to make further LCOE gains.
Finding the right balance will require companies, accustomed to the short-duration boom-bust cycles that have long characterised the US market (see chart, below), to navigate an unfamiliar landscape. "Developers, turbine OEMs, nobody is used to working in a fouror five-year timeline," noted Shreve. "We actually have to do some strategic planning now."
And there are some wild cards that could upset even the best-laid plans. Some of the cost reductions made by the industry in recent years are the result of low commodity prices, leaving wind energy competitively vulnerable should they start to rise. "If steel prices go up significantly, that's going to have a lot more effect on wind than solar," said Hardy.
Jim Murphy, CFO of developer Invenergy, is also keeping a close eye on interest rates. "We have been in this tremendously low interest-rate environment for such a long time that I think we're all taking it for granted. I know we don't see signs right now that it's changing any time soon, but when it does, we're going to have to reset customer expectations on the price of this product or innovate in other ways."
Resetting customer expectations is not something anyone in the US market is anxious to do. The past three years have seen a steady increase in the number of commercial and industrial (C&I) consumers contracting directly for wind power, to the point where these buyers signed more than half the power purchase agreements executed in the US last year.
Although green credentials and the need to reduce their carbon exposure are underpinning their interest, both suppliers and buyers acknowledge that what the C&I sector is really looking for is a good deal on power.
"For all the developers out there, price is the only thing that matters," said Mark Vanderhelm, vice-president of energy for Walmart. "My boss didn't give me a cheque to write when he said go out and meet the renewable goal. But he did say, go out and meet the renewable goal."
In a market defined by weak overall demand growth, finding ways to bring more C&I buyers to the table will help sustain the market for new wind. It will eventually require new deal structures that aggregate demand from a potentially disparate collection of companies, complicating what are already complex transactions.
"I think the market is still very focused on the Fortune 100, and they will, over time, start to meet their needs in the US," said Jacob Susman, vice-president and head of origination at EDF Renewable Energy. "Then the question is going to become, how do you meet the needs of the Fortune 200 or Fortune 2000 companies?
Even a massive company like General Motors is only buying wind in 30MW chunks, so imagine when you get to smaller public companies that only need 5MW or 10MW. How do we serve that part of the market? I think it's going to be a challenge."
Coming out of the valley on the other side also assumes implementation of carbon-reduction policies that will drive states and utilities to continue to green their electricity grids.
But in what one delegate described as the "insanity of the coming election season", where presumptive Republican presidential candidate Donald Trump has already vowed to scrapped the Obama Administration's Clean Power Plan and threatened to dismantle the Environmental Protection Agency if he wins, uncertainty on that front remains.
For Brown, that's just another reason for the industry to continue to sharpen its focus on cost. "We have to rise beyond politics," he told delegates. "In order for our business to be sustainable over the long term we have to be the first alternative, and to be the first alternative we need to be the most economic."